The Day I Lost a Sh*t-ton of Money, Part II (trading/stock Market)

1) There's always some element of luck involved. After all, I can't control everything that happens. I played poker before trading. There are similarities and differences. You can tell when you get unlucky, like when you get aces cracked by two runners. It's hard to tell if you get unlucky when stopped out on a day trade.

2) At the very least, I don't think what I do is harmful to anyone.

I'd also like to add that I make many trades that are a better example of adding value. In the trade example of buying the dip in AAMRQ (prior blog post on my site), I am making the market more efficient (I'm saying this with the benefit of hindsight, of course). AAMRQ was moving adversely against its clear fundamental value (based on a stock merger deal with US Airways) and by buying it on weakness, I'm adding liquidity on the side that it should "eventually go to". This only works if I'm consistently right more than wrong. I also short garbage stocks that have no fundamental value, another example of trying to restore efficient prices. Price discovery is important so capital isn't allocated inefficiently.

3) Impossible to ban trading without destroying market liquidity. It's also way too difficult to define what trading is helpful vs. parasitic and have everyone agree on it. One could easily place a seemingly "outlawed" type of trade and claim to have sound intentions, which is what makes market manipulation difficult to prosecute.

>>> The problem with your depiction is that it is self contradictory: you claim buyers and sellers are unwilling to budge from their 250K/300K position, then have a trader magically buy the house at 265K and sell at 285K. Somehow, the seller sold for 35K less and the buyer for 35K more. And instead of the actual actors of the market splitting the spread in some manner amongs themselves, a service provider gets a disproportionate slice of profit.

Yeah, but "actual actors of the market" don't talk with each other. You inherently rely on traders to set the price whenever you buy / sell stocks.

If you don't trust traders, then don't go into the Stock Market. However, I trust the market and take advantage of the liquidity that it offers me. Its so much easier to buy / sell stocks because of the mass of traders granting liquidity at every corner.

Traders capitalize upon emotion and correct the market. When people are panic-selling, traders look for market bottom and try to buy (sending the price back up). When people are stampeding towards the "buy" button, traders look for a market high and sell (or short sell), correcting the price back down.

Traders inherently watch the crowds, find problems with crowds, and then move the market into the more theoretically sane position.

Note that the "issue" in this blog post occurs when the trader ignores news, and misinterprets a massive drop in price as a false-panic. It wasn't a "false" panic, people were liquidating their position because news came in that devalued the stock. The trader somehow ignored the news and was caught buying stock on a downward spiral. Furthermore, when the crowds were telling him that it was a true market movement, he lost his discipline (with the company's money... but kept discipline with his personal bank account) and failed to liquidate his position.

>>>I've yet to read a coherent description of how the manufacturing and service world is better thanks to new trading techniques. It always seems to come down to having different people pocketing money instead of banks or more traditional wall street firms.

The entire commodity / futures market. The manufacturing benefits off of traders setting the price of oil / wheat / orange juice 6-months or 12-months into the future.

If you want to buy a contract that allows you to buy 1000 barrels of oil in March 2015 (say, you know your factory is going to be open by then), you can go to the futures market.

Or if you're an oil producer and you want to sell 1000 barrels of oil in March 2015 (maybe... you don't have the oil yet. But you expect to have oil by then).

But consumers don't know what the price should be, they'll throw down a call action on the oil. The Oil producer doesn't know the price either, so maybe he'd put down a put action on the oil.

But call actions and put actions don't line up. Someone has to step up to the risk that the producer doesn't sell oil (aka: his refinery blows up and can't make the oil by then), or that the consumer doesn't buy the oil (aka: the factory opening is delayed so you cancel the order). Traders calculate the risk, move the market and satisfies both parties.

Heck, the futures market is the only place where you can buy contracts like that. But without traders taking on the risk for everyone, futures market would be a lot less busy and much less useful.

The author did something super-unethical/illegal. He sold in his personal account before selling in his firm account.

In effect, he transferred $48.5k from his employer's account to his personal account.

Where/how do you even "learn" this trading skill. I mean, how did you learn doing this ?

Like most geeks I suck at negotiation. And trading seems to me a very fast-paced very high-stakes game of negotiation where you don't even get to talk to the other guy. How do you get better at that ?

I have to admit that I'm skeptical that it's possible at all to do this. In the longer term I mean. Nobody gives the other side of the argument though : there would be no banks, nor a wall street, if it really didn't work at all.